Chiat/Day Inc. Advertising

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Chiat/Day Inc. Advertising

340 Main Street
Venice, California 90291
(310) 314-5000
Fax: (310) 396-1273

Private Company
Employees: 850
Gross Billings: $932 million
SICs: 7311 Advertising Agencies

Daring, controversial, and visionary from its inception, Chiat/Day Inc. Advertising ranks 16th in gross earnings among U.S. ad agencies, according to Advertising Age, and is nevertheless regarded as leader in its field. The private companys notorious successes (which include the commercial spoofs featuring the Energizer Bunny and the slick Nissan fantasy campaigns) have come neither easily nor with any long-term guarantees. Of course, such is the nature of highly competitive, big-name advertising, but with Chiat both the rewards and the losses somehow seem magnified. To paraphrase one industry observer: Chiats list of clients it has lost, let alone won, over the years would be enough to satisfy even the hungriest of its competitorsand equally enough to put most any other agency out of business. The secret to the dynamism, staying power, and uniqueness of the company is, according to many, the personality and drive of founder/chairperson Jay Chiat. As Christy Marshall observed, in Business Month magazine: One of the few independents left in an industry dominated by mega-agencies, Los Angeles-based Chiat/Day is the personification of its founder and chief executive officera place where success breeds arrogance, where enthusiasm borders on fanaticism and where intensity looks suspiciously like neurosis. It is also a bone in the throat of Madison Avenue, which derides its inventive, often riveting ads as irresponsible and ineffectiveand then mimics them.

Chiat/Day was established when two competitors combined their talents to take on the bigger agencies in the Los Angeles area. Jay Chiat & Associates, founded in 1962, had billings of $3 million when Guy Day of Faust/Day Advertising, a $5 million agency, proposed a merger. Chiat agreed with Day to pool their creative and financial resources, and, by October 1968, Chiat/Day was in operation. Day, after winning a coin toss, became company president.

From the beginning, the agency eschewed standard practices and created its own, unique brand of advertising. Chiat/Day was among the first to use the English concept of account planners, liaisons between the agency and targeted consumers who travelled the country conducting individual and group interviews. Account planners not only gauged audience response and understanding of ads, but also served as a crucial link between the client and the buying public. A second Chiat/Day innovation was the requirement that clients actively participate in the creative process by attending an initial brainstorming or strategy session, as well as a subsequent planning session. Chiat/Day turned away business when clients refused this interaction. Third, Chiat/Day believed all staff members should be involved in a campaign via a task force approach. But Chiat/Days greatest innovations were the ad campaigns themselves, work that demonstrated the agencys relentless pursuit of quality and its unflagging ambition to unequivocally create the best ads in the industry.

After the two merging agencies combined their existing accounts and dropped any conflicts of interest, Chiat/Day was ready to take the advertising world by storm. In 1969, the agency picked up Western Harness Racing as client by betting its president they could raise attendance 15 percent with their ads. Another account included a public service ad, addressing racism, for the Los Angeles County Commission on Human Relations. Chiat/Days My Hero, the Pimp ads of 1970 raised large amounts of money for Direction Sports, an organization involved in helping urban youth. In short, Chiat/Day pushed the publics buttons as it grew in both recognition and billings.

Jay Chiats now classic maxim Good enough is not enough emerged as a defining concept for the company and a testament to Chiats vision of advertising. With a pronounced ability to stir things up, according to Day and others, Chiat traditionally drove his creative teams to the breaking point, the point where desperation often gave way to sudden inspiration. The enormous dedication called for among Chiat/Day employees engendered a corporate maxim perhaps just as popular and defining as Chiats: Chiat, Day and night. In 1971, the company hired Lee Clow, who would prove to best embody the creative soul of the agency in the years to come. While serving as the architect of many of Chiat/Days most memorable campaigns, Clow rose through the ranks to become president and executive creative director worldwide. According to Karen Stabiner in Inventing Desire, the rare chemistry between Jay Chiat and Lee Clow, perhaps as much as anything, propelled Chiat/Day into the limelight.

Throughout the 1970s, Chiat/Day experimented in style and substance, employing psychedelic colors in its ads for Viviane Woodard Cosmetics, scenic wonders for Rancho California, offbeat ads for KNBC and Motel 6, and a series of breakthrough ads for Hondas new automobiles. However, in 1975, Honda, responsible for half of Chiat/Days billings and three-quarters of its income, left for another ad agency. This proved the first of many blows to the fledgling agency, as small accounts would become giants thanks to Chiat/Days ads and then abandon the company for bigger, full-service agencies.

The following year, Chiat/Day ran a series of trade ads targeting the food, airline, pet, and motorcycle industries. These ads paid off, and Chiat soon landed clients including Yamaha, Suntory Royal Whiskeys Midori Melon Liqueur, Alaska Airlines, and the Olympia Brewing Company. During this time, Guy Day, wishing to spend more time with his family and pursue his interest in writing, sold his agency holdings and left Chiat/Day in his partners hands. By the end of the decade, Chiat/Day had opened an office in New York and had purchased an established agency in San Francisco. In 1980, the company was named Agency of the Year by Advertising Age magazine, which would again bestow that title on Chiat/Day later in the decade.

In 1981, as Chiat/Day was hitting its stride and becoming one of the fastest growing privately-held agencies in the United States, Guy Day rejoined the company to help steer its course. Also during this time, the foundation for what many consider the greatest ad in history was laid. Chiat/Day was steadily garnering attention for Apple Computer, a client of the agencys San Francisco office, through a series of popular ads. Then, in 1983, the agency began work on a TV spot introducing the Macintosh, a computer destined to revolutionize the industry, scheduled to air during the third quarter of the January 1984 Super Bowl. Using an abandoned print ad, staffers worked around the slogan Why 1984 wont be like 1984. Apple liked the idea, and the British film director Ridley Scott was hired for the filming. However, the disturbingly Orwellian commercial, featuring an athletic-looking young woman (symbolizing Macintosh) hurling a sledgehammer at a Big Brother TV screen (IBM), proved too brash a statement even for Apples executives, and, before air-time on Super Bowl Sunday, a reluctant Apple tried to pull the plug, finally insisting that Chiat/Day sell the air time. Fortunately, only half of the scheduled time could be sold, and the 1984 ad was run. Chiat/Day held its collective breath and waited for the fallout.

The commercial changed advertising; the product changed the ad business; the technology changed the world, wrote Bradley Johnson of Advertising Age in a January 1994 retrospective. It turned the Super Bowl from a football game into advertisings Super Event of the year, Johnson contended, and it ushered in the era of advertising as news. Costing a total of $900,000 to produce and air, 1984 resulted in millions for both Apple and Chiat/Day, as the spot was rebroadcast during evening newscasts and on Entertainment Tonight. 1984 not only swept the years awards, winning the Grand EFFIE, the Cannes Gold, the Belding Sweepstakes, and the Clio, but it was later dubbed Advertising Ages Commercial of the Decade. This is what happens, Johnson concluded, when breakthrough technology is given the benefit of the greatest TV commercial ever made.

In the wake of this success, Chiat/Day secured many new accounts, including Nike, Porsche, and Pizza Hut. The ads Chiat/Day produced for Pizza Hut spawned a lawsuit from competitor Godfathers Pizza. Setting an industry precedent, a California state court enjoined Chiat/Day from sharing confidential information learned while bidding previously for the Godfather account. The court also forbade any agency staffers who worked on the Godfather pitch from working on rival Pizza Huts account. In November 1984, an appellate court struck down the second part of the ruling, a victory for Chiat/Day and all ad agencies. Yet the remaining injunction seemed a moot point, since agency standards precluded the use of confidential information anyway.

In 1986 and 1987, Chiat/Day continued to prosper, with dynamic media ads for California Coolers, Nike, Worlds of Wonders Teddy Ruxpin, and celebrity spots for Mitsubishis 35-inch television by creative legends Bob Fosse, Jim Henson, John Huston, and Martin Scorsese. But with the highs came more lows, as both Apple and Nike (like Honda before them) departed for other agencies. According to The Economist: No other agency has got so big while maintaining such a fine reputation for cutting-edge work. But nor has any been so sharply criticized for putting self-indulgent creativity ahead of selling products. That has made for a history of stunning adsand devastating client defections. After six years, Guy Day would also leave the agency again, this time for good.

Yet 1987s acquisition of the Nissan Motor Co. account heralded a new era for Chiat/Day. Not only did Nissan consolidate its regional marketing with the agency in 1988 (adding another $90 million in billings), but it helped catapult the agency into the big time. With gross billings of $500 million, Chiat/Day was now ranked among the industrys top 25 agencies. To handle the influx of new business, Chiat hired almost 200 additional staffers and recapitalized to pay off senior executives and other equity holders by borrowing in excess of $50 million in 1988. By the end of 1988 and throughout 1989, the agency had expanded by acquiring a design firm, two public-relations operations, a direct-marketing company, and a sales-promotion firm. The pinnacle of Chiats growth during the 1980s came with the purchase of Mojo MDA Group Ltd., Australias largest advertising agency, with $180 million in billings.

One of Australias savviest agencies, Mojo was at its peak when the merger came through in 1989. Renaming the conglomerate Chiat/Day/Mojo, Jay Chiat was intent on building the worlds premier advertising and communications firm, a full-service provider that could become big without sacrificing its reputation for innovation. To facilitate the necessary restructuring and to ease an eventual transition in management, Chiat removed himself from direct involvement with the company and appointed Bob Wolf to take his place. However, amidst internal dissension and severe economic pressures, according to Stabiner in Business Month, Chiat returned to the helm the following year.

Chiat/Days billings hit $1.2 billion in 1991, with Toshiba, Reebok, American Express, The Boston Company, and Microsoft all signing on. Next in line was Nissans Australian accounts, which Chiat believed would be brought in with ease, given Mojos reputation and connections. However, Mojo failed to deliver Nissan or other international accounts, and instead began losing clients. Moreover, Shearson Lehman Brothers ($20 million), Chemical Manufacturers Association ($10 million), and AmEx Green Card ($60 million) all deserted Chiat. The industry was rife with speculation about Chiat/Days debt load, wondering how the agency would handle its rising interest payments. With heavy losses and the recession hitting Chiat/Day hard, the agency seemed at a dangerous crossroads, readying itself for massive layoffs or even acquisition.

By November 1992, Chiat/Day had unloaded Mojo to rival Foote, Cone & Belding Communications for an undisclosed sum. It was a mix of cultures that wouldnt marry, original Mojo founding partner Alan Morris (the Mo of Mojo) told Tony Burrett of Adweek magazine. Jay Chiat, on the other hand, was more circumspect, telling the Wall Street Journal that The initial reason for being in Australia and New Zealand was to service international accounts. But none of that has been fruitful, and it was time to move on. Nevertheless, Chiat remained optimistic about further international growth, noting: All our expansion plans have been opportunistic. If those situations exist again, well explore them. In October 1992, just one month before deciding to sell off Mojo, Chiat/Day received some good news: Nissan Motor Co. offered the agency its Infiniti division, worth approximately $90 million in billings. One year later, according to Larry Armstrong of Business Week, Chiat had an estimated $850 million in billings, more than 40 percent of which were due to Nissan alone.

Although recent years for Chiat had been tumultuous, 1993 proved more so, as the agency executed some bold moves in preparation for the future and unprecedented losses struck at its core. Two initiatives went from drawing board to implementation. First was Project Chrysalis, a think tank designed to propel the agency away from its current restraints of time and space. Chrysalis developed the blueprint for the industrys first virtual office, a fully portable, organic workplace that broke with traditional concepts of office use and featured state-of-the-art communications technology. The second initiative involved Chiat/Days push to replace standard 90-day termination clauses with three-year pacts. The move triggered debate across the country, as East Coast agencies attacked the idea and West Coasters embraced it. Though most agencies craved the security and stability a three-year pact guarantees, few clients were prepared to sign into such a fixed-term contract. Simon Bax, Chiat/Days executive vice-president and chief operating officer, saw advantages for both sides: The most difficult conversation between client and agency is compensation, he told Advertising Age in May 1993, noting that if you can introduce an element that isnt financial, you can focus on the relationship.

While Chiat/Day began preparations for its virtual move and the celebration of its twenty-fifth anniversary, another string of heavy account losses struck the company. This time the defectors were TV Guide and National Car Rental Systems. Then, in September 1993, the agency was unceremoniously bounced from the $80 million Reebok account, which it had won back after a similar dumping in 1991. The account was given to Chicago rival Leo Burnett, as was the $60 million European portion of the billings, which had only recently been won by Euro RSCG agency.

Although David Ropes, Reeboks vice-president of worldwide marketing services, extolled Chiat/Days virtues, he found the agency lacking in global terms: We made this decision because we need better global resources. We want to tap into Burnetts world-wide network to drive our sales world-wide. With characteristic aplomb and irreverence, Chiat/Day took out full-page ads in both the Los Angeles and New York Times that read Now we know how Dan felt, referring to Dan OBrien, who had failed to qualify for the Olympics. OBrien had been featured in Chiat/Days $30 million Reebok campaign, which centered on the rivalry between decathletes OBrien and Dave Johnson. The agency had to scramble and developed an ad heralding the glory of the athelete featuring OBrien. It was a public relations coup with coverage in all the major press.

Like OBrien, who went on to shatter a world record, Chiat/Day came back with a vengeance, snagging the Cherry Coke ad campaign, consolidating all of NYNEXs media spending (the agency had previously scored with a popular campaign of stylish and humorous NYNEX yellow pages human cartoons ads), and adding the Starter Rugged Terrain shoes campaign. These full-page ads ended with a teaser, an apt motto for Chiat/Day: You havent heard the last of us, either.

The key to this agency, Chiat had told Business Month in 1988, is the premise that it is very important never to peak, because once you do, youre down the other side of the mountain. Indeed, Chiat/Days commitment to innovation remained intact into the mid-1990s. On the cutting edge of style and architecture, the agencys corporate headquarters in Venice stood as a monument to Jay Chiats inimitable style and determination. Valued at $20 million and designed by Frank Gehry, the odd collection of buildings included the Main Street corridor, the Fish (a meeting room resembling the belly of a whale), and the Boat and Tree wings, spectacularly joined by a three-story pair of binoculars created by Claes Oldenburg and Coosje Van Bruggen. Moreover, in keeping with Chiats maverick reputation, extensive renovations were nearly complete for Chiats new virtual workspace.

Investing nearly $8 million in technology alone, Chiat/Days move to virtual reality was also regarded as innovative. The technology is the easy part, remarked Laurie Coots, senior vice-president of administration and new business development. The hardest part is intellectual, thinking through how people feel and work, she told Advertising Age. On January 3, 1994, the agency officially implemented its concept; traditional desks and cubicles were replaced by electronic calendars and e-mail, lockers, laptops, beepers, and cellular phones. What were trying to do is kill all the antiquated habits, Chiat explained in Forbes ASAP, noting that were trying to reinvent the way we work. Among the new features were SBUs (strategic business units) for conferences and pitches; computerized editing studios; a CD-ROM library; and the newly christened Student Union, with giant television screens, punching bags, a pool table, and a diner. Almost every square foot was wired for portable Macintoshes and phonesthe agencys tools of the trade. Its not for everybody, Karen Knowles, an assistant producer at Chiat/Day, told Betsy Sharkey of Adweek in May 1994, a few months after going virtual, but its always been survival of the fittest at Chiat/Day, and now its more intensely that way.

Industry response has been, at best, reserved. Its been debated, deified and debunked, Sharkey commented of Chiat/Days virtual move. Chiat himself concurred: If [J. Walter] Thompson had done it, thered be less skepticism. As of 1993, staffers were adapting, and Chiat/Days chief operating officer, Adelaide Horton, believed their newfound flexibility would reduce our real estate costs per employee as much as 50 percent. In June 1994, the New York office made its own leap into new quarters on Maiden Lane, adjacent to the South Street Seaport area. The work space has garnered interest from IBM, Arthur Anderson, Price Waterhouse, Citibank, and others as they begin implementation of their own versions of virtual offices.

Another innovative move for Chiat/Day was its move towards infomercials. Jay Chiat told the Wall Street Journal that while infomercials were not part of the traditional agency make-up, we have the opportunity to do some interesting projects. More and more companies are interested in the infomercial form. Competitors DDB Needham and Interpublic Group were already producing infomercials with in-house units. In a related move, Jay Chiat with Jim Robinson invested $50,000 to acquire a minority stake in Interactive Connection, a struggling online service available through Internet.

Although Chiat/Day has probably had more than its share of ups and downs, the companys top executives, including Chiat, Wolf, Clow, and Bob Kuperman, remained a potent force in the ad business. According to Adweek, when the International Advertising Association (IAA) was planning its thirty-fourth annual World Advertising Congress, they had an idea: they would invite David Ogilvy, Jay Chiat, and Mike Ovitz to speak as the quintessential advertising entrepreneurs of the century. David Ogilvy would represent the past, Chiat the present, and Ovitz the future of the industry. But perhaps such pigeonholing, at least in Chiats case, was premature. I deal with today and tomorrow because I cant remember yesterday, Chiat told Adweek.

Principal Subsidiaries

Chiat/Day Communications Inc. Public Relations; Chiat/Day Direct Marketing-New York; Venice Operating Corp.

Further Reading

Agency Report, Advertising Age, April 13, 1994, pp. 16, 24.

Aho, Deborah, Jay Chiat Gets Ready to Log onto Internet, Advertising Age, June 20, 1994, p. 74.

Alter, Stewart, Fallout Lingers from Godfathers-Chiat Suit, Advertising Age, May 13, 1985, p. 60.

Armstrong, Larry, and Geoffrey Smith, Its Reebok Outand Nissan In, Business Week, October 4, 1993, p. 38.

Brand New Day, The Economist, June 19, 1993, pp. 70-71.

Burrett, Tony, FCB Has Got Mojo Working Again, Adweek, May 2, 1994, p. 46.

Elliott, Stuart, Chiat/Day to Handle Benetton Campaign, New York Times, June 28, 1994, p. D18.

Farrell, Greg, Chiats End Game, Adweek, July 12, 1993, pp. 26-34.

Goldman, Kevin, Chiat/Day Pulls Up Down Under, Selling Mojo Shop to Foote Cone, Wall Street Journal November 11, 1992, p. B11; Chiat/Day to Make Infomercials through a Joint-Venture Deal, Wall Street Journal, November 23, 1993, p. B10; Reebok Fires Chiat/Day and Hires Burnett, Wall Street Journal, September 15, 1993, p. B7.

Horton, Cleveland, and Melanie Wells, Chiat Pushes 3-Year Pacts for New Clients, Advertising Age, May 10, 1993, p. 4.

Horton, Cleveland, A Day in the Virtual Life of a Chiat/Day Executive, Advertising Age, March 14, 1994, pp. 19-20.

How Agencies Fared Around the World, Adweek Special Report, March 20, 1989, p. N34.

Johnson, Bradley, 10 Years After 1984, Advertising Age, January 10, 1994, pp. 1, 12-14.

Kessler, Stephen, Chiat/Day: The First Twenty Years, New York, Rizzoli International Publications, 1990.

Landler, Mark, Chiat/Day is Winning, After Losing, After Winning..., Business Week, December 2, 1991, p. 120.

Levin, Gary, Chiat Tries Direct Marketer Role in Infomercials, Advertising Age, May 16, 1994, p. 8.

Marshall, Christy, Smart Guy, Business Month, April 1988, pp. 32-35.

Rapaport, Richard, Jay Chiat Tears Down the Walls, Forbes ASAP, October 25, 1993, pp. 25-28.

Sharkey, Betsy, Chiat/Day Comes of Age, Adweek Special Report, March 20, 1989, pp. N8-9, N12.

Sharkey, Betsy, Going Virtual, Adweek, May 16, 1994, pp. 28-35.

Stabiner, Karen, Inventing Desire, Simon & Schuster: New York, 1993.

Stroud, Ruth, Guy Day Cheers on His Namesake, Advertising Age, April 24, 1989, p. 64.

The 30 Hottest Agencies of 1988, Adweek Special Report, March 20, 1989, p. N14.

Tilsner, Julie, But Will They Get Their Own Water Coolers?, Business Week, July 19, 1993, p. 32.

Wells, Melanie, Behind Scenes, Chiat Talks of HQ Sale, Advertising Age, April 28, 1993, p. 50.

Working without Walls, Advertising Age, November 22, 1993, p. 8.

Yeoung, Mary, If Its in There, Its Outrageous, Marketing & Media Decisions, August 1989, pp. 26-27.

Jay P. Pederson and Taryn Benbow-Pfalzgraf